Interest rates are going up, so bond and stock prices are going down. You can ride it out, but it will be an awfully long rough ride. I recommend moving out of stocks and bonds and holding other assets or hedging your equity and fixed-income holdings.
Q1 2022 hedge fund letters, conferences and more
Dr. Wade Pfau, professor of retirement income, has called bonds “useless” and equities “risky.” What should you own at this perilous time of increasing interest rates and collapsing stock prices?
I discuss two choices: (1) voiding your portfolio of stocks and bonds, and (2) hedging your stocks and bonds.
Portfolios that don’t hold stocks and bonds
If you’re not going to hold stocks and bonds, there’s a long list of investments you could own. The following should protect against inflation: real estate, precious metals, commodities, natural resources, agriculture and, yes, even cryptocurrencies.
Some mix of these assets could make up your risky portfolio instead of stocks.
To control risk, use inflation-protected low-risk assets like short-to-intermediate Treasury Inflation-protected securities (TIPS).
For guidance on the blending, look to the Talmud that advises a third in land, a third in business and a third in reserve. In this case, the third in business would be inflation-protected assets. The initial portfolio would look something like the following:
Risk can be managed by combining these two portfolios, moving into a ”stabilization” portfolio to decrease or increase risk. You can tinker with the sample allocations based on your comfort and understanding.
Read the full article here by Ron Surz, Advisor Perspectives.
